Putin Weighs $11 Billion Rosneft Sale to China, India

Russia has been seeking buyers for 19.5 percent of state oil champion Rosneft OJSC and is now indicating for the first time it would prefer a joint deal with the two nations driving growth in global energy demand, two people familiar with the matter said. Officials in Moscow expect to raise at least 700 billion rubles ($11 billion) from the sale, which would set a privatization record for the country. There’s “no single preferred option” for the deal, Kremlin spokesman Dmitry Peskov told reporters on Monday.

Bringing two of Asia’s three largest economies into Rosneft, which pumps more crude than Exxon Mobil Corp., would help Putin cover budget shortfalls while strengthening his geopolitical hand at a time when conflicts in Ukraine and Syria have driven relations with the U.S. and Europe to a post-Cold War low. It would also balance the near 20 percent stake held by London-based BP Plc, the bulk of which was acquired in 2013 before Putin stoked a separatist rebellion in neighboring Ukraine by annexing Crimea.

“This would be a logical choice,” said Vladimir Tikhomirov, chief economist at BCS Financial Group, a Moscow brokerage. “India and China aim to boost ties with Russia, while Russia’s options for investors in Rosneft are quite narrow.”

China and India have both publicly expressed interest in the Rosneft sale, which would cement their footholds inside the world’s largest energy exporter, although neither side has said whether a joint deal is being considered. On Friday, Indian Oil Minister Dharmendra Pradhan said one couldn’t be ruled out.

“We are not rivals,” Pradhan said in an interview at Putin’s annual economic forum in St. Petersburg, adding that India’s Oil & Natural Gas Corp. and China National Petroleum Corp. already have joint projects and more “would be nice.”

Rosneft Chairman Andrey Belousov, who is also an aide to Putin, said last month that Russia would prefer to sell the stake to two strategic partners, without elaborating. Energy Minister Alexander Novak said in an interview in St. Petersburg that Russia would welcome interest from both China and India, but declined to comment on the possibility of a joint deal. 

BP plans to keep its stake unchanged, Chief Executive Officer Bob Dudley said in St. Petersburg, adding that a possible deal with India and China “is completely up to the Russian Federation.”

Complications related to sanctions may delay the sale, which would still leave Russia’s government with control of the company, until next year, one person involved in the planning said. Other options, such as offering some shares to the public, are being considered, another person said.

“If oil prices stay at current levels at least until the end of the year Russia’s budget deficit will not be as critical as its Finance Ministry predicts,” BCS’s Tikhomirov said. “So Rosneft sale could wait until the next year, when oil will likely grow further.”

Still, Economy Minister Alexei Ulyukayev said Friday he expects a deal this year, reflecting the urgency Putin expressed in April. Putin said then that he wants to complete the transaction as soon as a strategic partner can be found who isn’t a “cheapskate.”

“We need the money,” Putin said at the time.

(Bloomberg)

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